Once corporations in Canada decide to apply for SR&ED tax incentive program, they need to make sure their claims have been done correctly. However, the application process for SR&ED can be a bit complicated, which is the reason why there are so many misconceptions about this program online. And those myths can easily lead to application failures. This article is created to provide you with a better understanding of the following arguments:
1. “SR&ED is only applicable for tech companies.”
The truth: SR&ED tax incentive program is for almost all industries.
According to the official explanations on the CRA website, a qualified SR&ED project needs to cover either of these categories:
- Basic Research – traditional research conducted in labs;
- Applied Research – research through a variety of channels;
- Experimental Development – demo, prototype, code, etc.
Although SR&ED is popular among tech companies, other sectors such as education, real estate, logistics, agriculture, and so forth, have many eligible projects as well. They can also benefit from SR&ED.
2. “Only successful projects can apply for SR&ED.”
The truth: Expenses for unsuccessful projects could also be eligible to claim.
Failure during the experiment and development process is inevitable. Companies need to make systematic adjustments to the previous data. But in the end, if it is still impossible to obtain effective results, this kind of failure is sometimes acceptable.
According to the CRA, the key to a successful SR&ED claim is to overcome technical or scientific uncertainties. An unsuccessful project is still valuable because lots of technical problems had been solved during the exploring process. In that case, even if the project fails, the related expenditures can still be funded by the SR&ED project.
3. “SR&ED is not for start-up companies.”
The truth: all the companies with at least one year of tax filling records could apply for SR&ED., regardless of its size.
Many people believe that SR&ED is only eligible for large companies. In fact, only
- non-CCPC companies
- non-profit organizations (NPOs)
- public companies and companies who do not pay taxes according to regulations
are not suitable to apply for SR&ED.
A great thing about this program is that it is eligible for companies of all sizes. If you just started your business, it is applicable for your company to receive government support through SR&ED. The only thing you have to remember is the company needs at least one year of tax filing records when applying for SR&ED for the first time.
4. “SR&ED only needs formal application documents.”
The truth: any project-related document and file types can be eligible.
Generally speaking, the CRA requires two types of supporting documents:
- the claimed project and;
- the related expenditures.
Some formal documents such as:
- project schedules
- experimental procedures
need to be archived in advance.
At the same time, some informal records are also essential because emails, meeting minutes and paper notes often include important information. The better you prepare the documents, the faster the CRA proceeds your SR&ED claim.
You may find more information in Documentations You Need to Prepare for the SR&ED Application.
5. “If I applied for other funding, I cannot apply for SR&ED anymore.”
The truth: SR&ED can be applied with many other government funding.
For example, companies can apply for SR&ED although they applied for the Canada Emergency Wage Subsidy (CEWS) during that time. It is worth noticing that the overall amount of your SR&ED application needs to be deducted from the subsidies you obtained from CEWS.
SR&ED covers plenty of industries and projects to conduct R&D. Many companies are missing this great opportunity because they are not sure whether their projects are eligible or not. Don’t be trapped by the misconceptions, and your application will be worth the effort.
If you are uncertain about the SR&ED tax incentive program, the process, eligibility, documentations need to prepare, or anything else, talk to a professional SR&ED consultant for more help.